Venezuela's Tragedy

The tragedy that is unfolding in Venezuela shows no signs of abating as that country continues to face two simultaneous and inter-twined crises that are tearing that country apart.  One crisis in the ongoing collapse of the Venezuelan economy, with Venezuela having the distinction of being the world’s worst-performing economy in recent years.  This has led to shortages of even the most basic consumer goods and transformed what was once a well-off country to a basket case that is forced to beg for international aid.  The other crisis is political, as Venezuela’s President Nicolas Maduro is desperately attempting to cling on to power despite his loss of support and, quite frankly, his utter incompetence.  The longer he attempts to hold on to power, the greater the chance of a full-scale civil war in Venezuela.

The current situation in Venezuela is one of utter desperation.  According to official data, Venezuela’s economy shrank by 3.9% in 2014 and 5.7% in 2015, although this likely understates the actual decline in the country’s economic output.  Oil output, which had reached 3.5 million barrels per day in the mid-1990s, has fallen to just 2.5 million barrels per day today and is likely to fall further as little investment is flowing into the country’s oil sector.  In the meantime, hyperinflation has taken hold in Venezuela, with the country’s inflation rate now estimated to be around 500% and rising rapidly.  This has led to a collapse in consumer spending in Venezuela, while inflation and the dramatic depreciation of the country’s currency, the bolivar, have led to worsening product shortages.  Adding to this misery is the fact that there is no short-term solution to Venezuela’s economic woes and the situation is sure to worsen in the months ahead, with Venezuela’s economy likely to shrink by almost 10% this year.

What is most troubling about Venezuela’s ongoing crisis is the fact that it did not have to be this way.  Unfortunately, Venezuela has been forced to endure some of the world’s worst political and economic leadership over the past two decades, first in the form of Hugo Chavez and then in the form of his bumbling successor, Nicolas Maduro.  It is important to remember that Venezuela was once Latin America’s wealthiest country in the wake of the OPEC-driven oil price hikes in the 1970s and early 1980s.  The oil revenues that flowed into Venezuela during this period allowed for the beginnings of a diversification of the country’s economy.  However, the fall in the price of oil in the 1980s and poor economic management by the predecessors of Chavez and Maduro led to the economic troubles that helped lead to the Bolivarian Revolution under Hugo Chavez in the late 1990s.  Unfortunately, Venezuela’s left-wing government of the past 18 years has driven the country’s economy into the ground.  Now, the country that by some measures has the world’s largest oil reserves is in the position of a beggar, forced to sell its gold reserves and other assets in a desperate bid to avoid a total collapse.

Ultimately, avoiding a complete economic collapse will only be possible if President Maduro can be removed from office as soon as possible.  Without a doubt, he has earned the title of the World’s Most Incompetent Leader and he has lost much of his support in recent years.  Even his former left-wing allies have called on him to step down, such as former Uruguayan President Jose Mujica, who recently called Maduro “mad as a goat” for his refusal to step down.  If Maduro can be forced to step down, a new government can be formed that would be able to stabilize the economy by gaining foreign aid for Venezuela.  Over the longer-term, the county will need to be able to attract major amounts of foreign investment and to gain access to export markets, something a Maduro-led government will never be able to achieve.  As such, only his immediate departure will prevent a total collapse of the Venezuelan economy and years of pain and suffering for the people of Venezuela.  However, he appears determined to hang on to power, regardless of the consequences for his country and its people.